The cover of Friday's Examiner sports section carried an ominous headline as employees filed out of the Examiner's offices. The Fang-owned Examiner announced that it will cease publication.
PAUL CHINN/SF CHRONICLE

In a move staff members warned could be the death of the newspaper, the San Francisco Examiner laid off most of its editorial staff Friday and announced it would become a free daily paper available only in city news racks and retail stores, starting Monday.

Forty staff members in the circulation department and newsroom were let go, leaving just two reporters, three editors and two columnists. The newspaper will now share more content with the Independent, which is owned by the same family as the Examiner.

The move comes a little more than two years after the Fang family acquired the Examiner in a deal that allowed the sale of The Chronicle to the Hearst Corp.

"It's over. They'll continue in some form, but this was the last attempt to make it a real newspaper," said David Kiefer, a general assignment reporter laid off Friday.

Around 12:30 p.m., the staff received a cryptic e-mail from James Fang, son of publisher Florence Fang: "Staff meeting at 2:30 p.m."

For months, staffers had speculated that the paper would be sold or that the Examiner would merge with the Independent, among other scenarios. They had watched as a page designer, a photographer and others left and were not replaced.

"We were working at the bare bones. We couldn't have cut more people," said Anne Crump, assistant features editor.

At the meeting, James Fang, distracted and fidgeting, thanked staff members for their hard work but said "it didn't work out," Kiefer said.

Fang then said a lot of positions were going to be eliminated and left the room. A human resources worker told employees that everyone in the room had been laid off, then handed them their final checks and severence, Crump said.

The meeting lasted about 10 minutes. When workers returned to their desks, the computers were already shut down. They were given an hour to pack and leave. Guards waited by the stairwell and elevators as staffers exited.

They carried U-Haul boxes and hailed taxi cabs or left on public transportation. Many gathered at the nearby Anu bar.

"We knew it was coming, but we didn't know it was coming so soon," said Debby Morse, an Examiner columnist who was laid off. Morse is the wife of Chronicle columnist Rob Morse.

The changes were made to ensure San Francisco remained a city with two daily newspapers, said Chris Beck, spokesman for the Examiner. "We had to make an economic decision to allow the paper to survive," he said.

Florence Fang said the newspaper is responding to trends in the market. "We are willing to make radical change to serve the needs of San Francisco," she said in a news release.

In August 1999, Hearst announced that it would purchase The Chronicle and either sell the Examiner or close it if no buyer could be found. But in January 2000, real estate investor Clint Reilly sued to stop the sale, arguing that Hearst planned to shut down the Examiner and create a San Francisco newspaper monopoly.

Hearst then agreed to transfer the Examiner to the Fang family, publisher of the Independent newspapers and Asian Week.

Reilly pressed his suit through a monthlong trial that ended in favor of Hearst and the Fangs in July 2000. The deal included a three-year, $66 million subsidy from Hearst to the Fangs.

Reilly said the subsidy was never enough to create a newspaper that could compete. "Now San Francisco has lost the competing voice it needs to foster healthy debate and to keep The Chronicle honest," he said.

Hearst does not make regularly scheduled subsidy payments to ExIn, the parent company of the Examiner. Rather, the Examiner submitted bills to Hearst,

which then reimbursed the newspaper -- and thus ensured the money was being spent on the daily newspaper.

The contract did not dictate how much had to be original local content or the number of staffers. The Examiner already runs stories by Independent staff writers.

Beck said the Examiner was running out of money and that the two publications would share more content. He said Monday's Examiner would maintain a 50,000 press run.